Former Delta Property Fund execs face delinquency application

Former Delta Property Fund chair Johannes Magwaza and CEO Sandile Nomvete will have to fend off a delinquent directors application brought against them by a creditor of their liquidated entity Somnipoint.

Johannesburg-based private equity firm Vantage Capital Fund Management has asked the high court in Johannesburg to declare the men delinquent directors, in a case that also lifts the lid on some of the alleged governance breaches at Delta during their tenure.

Vantage is also suing the two men, together with another former Delta executive, for a combined R371m over a property deal that went pear-shaped. The private equity firm claims it granted Somnipoint a R200m credit facility nearly a decade ago to buy a building in Pretoria.

As security for the loan, Vantage registered a mortgage bond over the building called Absa Towers and obtained a cession of the rentals from Somnipoint

Vantage argues that Somnipoint’s default on its debt was not a normal default, accusing the company’s directors of having used Delta in frustrating it from exercising its rights as a creditor.

Nomvete did not want to comment on the application brought by Vantage, saying the matter is still pending before court. 

Magwaza tried unsuccessfully to have the court decline an application by Vantage to amend its application and allow it as a creditor to rely on public interest grounds to declare the men delinquent directors, arguing that the entity has no legal standing to bring such an application.

Vantage’s counterargument was that it was acting in the public interest because the men were directors of a dozen companies and that Delta was a public company.

Judge Norman Manoim gave Vantage time to amend its application in a judgment handed down two weeks ago.

Magwaza, who has served on many boards in his long business career, did not respond to questions sent to him. He has served on the boards of Tongaat Hulett, Nedbank, Hulamin, Rainbow Chickens, SAA, Mutual and Federal, and Anglo American SA. He left Delta in September 2020, shortly after Nomvete and other executives resigned under a cloud. 

The JSE-listed Delta in December 2020 informed the market that a forensic investigation found evidence of past practices involving governance failings and wrongdoing at the company, “including unsubstantiated payments, procurement irregularities and other unethical business dealings”.

The report has never been made public. Business Day has gathered that Absa Towers was also part of the reasons that caused ructions in the corridors of Delta. Delta in 2015 entered into an agreement with Somnipoint to acquire the Absa Towers building from Somnipoint and paid a R45m refundable deposit to Somnipoint. Delta’s investment committee later declined the deal. However, Delta claims the deposit was not refunded, a contention Nomvete denies.

“In 2015 the board of Delta and the directors of Somnipoint were advised that the R45m deposit was transferred by the finance team to the account of Somnipoint. When the sale of Absa Towers did not materialise Somnipoint signed a repayment agreement and Somnipoint started to pay back the deposit to Delta,” Nomvete said.

“Only later at the liquidation enquiry of Somnipoint in 2022 did the directors of Somnipoint discover that the R45m deposit was indeed paid into Somnipoint bank accounts but R40m of this money was transferred out and eventually paid back to Delta the very same day.”

This is in stark contrast with Delta’s annual report, published a few months ago, which indicates the money was not paid back.

Nomvete said the transaction did not involve a conflict of interest and was above board.

Nomvete, who took Delta public in 2012 also rubbished suggestions that the deal between Somnipoint and Delta was not at arm’s length. He said the transaction was disclosed in the company’s prelisting statement. Business Day verified that the Absa Towers deal was mentioned in the prelisting statement involving an entity called Mesidox, of which Nomvete was one of the directors. Magwaza was not a director in Mesidox.

However, the prelisting statement makes no mention of Somnipoint. Nomvete said it is because some of his partners in Mesidox did not want to assume the financial risk that came with the Absa Towers transaction.

“This company’s [Somnipoint] sole purpose for existing was to purchase the building in Pretoria called Absa Towers. This building was 40,000m² and a vacant building in the Pretoria CBD. The shareholders invested circa R60m of own equity into the transaction and borrowed the rest of the purchase price totalling R400m,” Nomvete said.

“As founders of Delta, which was in the process of listing on the JSE Stock Exchange in November 2012, we were offered in the market this large vacant building and immediately identified it as a potential risk to the Delta portfolio, should the building be bought by Delta competitors. Also Delta was not in a position to acquire the building as this would have been hugely dilutionary to Delta earnings as the building was vacant.”

A Delta spokesperson did not want to go into the merits of the matter. “Delta indicated that the matter is still proceeding, and that the outcome of proceedings will be a matter of public record,” he said.

khumalok@businesslive.co.za